AAPL Up On eMac Announcement

By TMO Staff

Apr 28th, 2002 5:00 PM EDT

Say Hello (again) to the eMac

In a surprise move, Apple Computer on Monday introduced the 17" CRT eMac designed specifically for the education market. The 17" G4 eMac, which sports an enclosure similar to the original iMac, starts at $999 and will be available in the education market beginning in May.

In other Apple announcements, the company released an updated Titanium PowerBook sporting a new digital display and the availability of a converter to connect the new PowerBook to Appleis line of ADC-based Cinema Displays.

AAPL moved higher on the announcements and finished the day at $23.96, up $.95.

The Broader Markets

The markets opened on Monday with major market indexes at or below their levels when 2002 trading began. The past several weeks have challenged traders seeking decent market returns and tested the patience of even long-term investors. The NASDAQ Composite Index began Monday trading roughly 275 points below its January 2, 2002 close, a drop of about 15 percent in four months of trading. The S and P 500 index was down almost 7 percent through Friday from the first trading day in January and the Dow Jones Industrial Average closed just over 160 points below its earliest January close.

In early Monday trading the markets continued to react to last weekis preliminary economic growth estimates for the first quarter of 2002 that indicate the economy expanded at a 5.8 percent rate. However, there is more and less to the numbers than the sizzling rate of growth might imply.

By the afternoon the markets had drfited back and forth between positive and negative territory. The Dow Jones Industrial Average closed the day at 9,819.87, down 90.85. The S and P 500 Index ended Monday at 1,065.18, down 10.88 and the NASDAQ Composite Index stood at 1,656.93, down 6.96 when trading stopped.

High Inventories, Low Guidance

The 5.8 percent growth rate for the first calendar quarter represented a significant build up in inventories. Consumers continue to carry the economy and businesses have continued to spend at slow, recession-era rates. Unless businesses begin to increase spending, the rate of economic growth will slow from the first quarteris torrid pace as businesses work off inventories.

The first quarteris earnings season produced guidance for the second and third calendar quarters can be described as ambiguous at best. Corporate executives are loath to release upbeat expectations from fear of disappointing investors. Wall Street analysts, whose job it is to advise investors, will be rolling up their sleeves to develop performance models for the companies they cover rather than relying on guidance of management. Forecasting significant growth in corporate revenues and earnings has become a no manis land, fraught with peril where optimists tread alone.

The comparatively better performance of the Dow since January 1, 2002 indicates that investors have fled to blue chip stocks and old-fashioned cyclical stocks as a sanctuary for dollars while real growth works its way through the economy.

The Battle For A Bull Run

All this seemingly bearish news leads to only one conclusion: We are at the beginning stages of a major bull market run. Bull markets traditionally climb a wall of worry. The battle for a bull run has begun. In this contest the ammunition is information. As more concrete information concerning corporate revenues and increased business spending hits the news, stock prices will begin to move markedly higher from their current levels.

What About Apple?

Appleis primary markets - consumers, education, content creators and designers - will most likely be in the market for mew computer hardware before major increases in corporate IT spending are announced. Apple should grow more in line with the broader market than many of its competitors who have substantial exposure in the corporate market.

Thereis one more issue to consider. At the end of the March quarter, Apple had virtually zero channel inventories of the new iMacs. Ordinarily Apple carries four to five weeks of channel inventory on its products. At the end of this quarter Apple may benefit from additional shipments of the new iMac to fill normal channel inventory levels. This may increase Appleis revenues for the quarter $75 to $100 million. Provided shipments of the new iMac remain on track, I expect Apple to handily meet its revenues and earnings guidance for the quarter.

In Monday trading:

Apple (AAPL) closed at $23.96, up $.95.

DELL (DELL), the PC market leader, lost almost 3.5 percent on Friday. In todayis trading Dell finished up at $25.57, down $.31.

IBM (IBM) is making a major Linux push. With the first calendar quarteris disappointments behind it, Big Blue should bounce off its 52-week low and begin to move higher, helping the Dow reenter positive territory for the year. IBM was at $83.89, down $.82 when the closing bell rang.

Red Hat (RHAT), marketer of the popular Red Hat Linux product, ended Mondayis trading at $4.60, down $.02. Red Hat currently has a 52-week range of $2.40 - $9.50 per share.